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I've read "Animal Spirits" twice and I would have thought for sure that you would see the benefits of cryptocurrency in an economic model.

It's more about eliminating the obfuscation of money than replacing fiat. Tokenized digital assets and programmable money within trustless networks will eventually lead to increased in confidence and increased efficiency! Just my two cents, but I really think you have understated or completely missed the value of cryptocurrency in this post.

The original idea behind bitcoin as the first crypto-currency was:1) prevent printing money out of thin air, hence limitted number of bitcoins to ~21million2) cheap transactions3) privacy/anonymity 4) high level of security for your wallet and transactions

Bitcoin may rise in the value over the time and due everincreasing demand to limitted supply, however lets not forget that trades in bitcoins are done in fractions, 8 decimal places after the dot. Just imagine to add one additional place and use 9 places after the dot instead, bitcoin would be inflated 10 times (1000% inflation). Concept of point 1) crushed.

2) although they are advocating for cheap transaction, cumputing power required for transaction processing has enormus cost, purchasing hardware, consuming the power to run it and compensating staff to keep the thing running. Also we cannot ignore innovations and development in semiconductur industry, almost doubling computing power every 2-3 years, which eventually will require reinvesting profits in the new hardware. Point being, similar to the banking sector, crypto-community will have to spend heavily on technology,expensive developers and IT security engineers. In the meantime, do you think that banking sector will sit still and watch how their business is being depricated?

3) transactions in itself do not contain any personal info that can be tracked to you. However, you must be connected to the Internet in order to make transaction, and the moment you are connected to internet, ISPs are obliged by the law to store loggs (6months -3 years depending on a country).It does not take long to puzzle the pieces for experts and get your digital footprints.

4) speaking of security, if one gets to your wallet credential (steals your phone or computer, or hacks it), all of your money is gone with no way to trace it back without compromising point 3), which is difficult but certainly not impossible as explained previously.

Have you asked yourself when value of bitcoin dropped from ~$20,000 to ~$6,000 where the money went and who took the profits? It did not disaper to a thin air for sure.What is guarantee do you have that it won’t drop from ~$6,0000 to ~$60?

What will it take to drive value from current price to advertised $100,000 at one point?

In my opinion it is very clever trojan horse to collect money that is currently not (and cannot be) in circulation in the banking system; also rip off ordinary people of their savings as the return on the investment is too good to be true.

Investment failure of many in cryptocurrency is and will be capitalized as the success of a very few who continue to advocate fairytale of utopian currency.

I've watched Dr. Shiller's intro to finance class through OpenYale and am very surprised to see this type of article from the same person who gave this lecture on technology and finance: https://www.youtube.com/watch?v=Iij2mpilSJo

I was hoping for a more thorough analysis.

By any measure, the invention of Bitcoin is succeeding. I own some and do use it as currency. It will soon be a decade old. Why is that? Why hasn't it gone away yet? How did a decentralized digital asset develop? Why does it work? That would be a much better article, especially coming from an economist as esteemed as Dr Shiller.

Cryptocurrencies were invented with the intention of creating a global currency to be used as a medium of exchange. Although they haven't yet achieved that purpose broadly, with technological improvement they will. For the time being, it is clear that they are a superior store of value to anything previously conceived by mankind (think fine art, collectables, and gold). Another Nobel Laureate in Economics, Paul Krugman, wrote in 1998, “By 2005 or so, it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s.” It will soon be apparent that those who ridicule cryptocurrency are even more laughably shortsighted.

The world is engaged in corruption as usual and "selfies" prevail in a generation unlike others in their me-me attitude unfortunately looking down at their phones instead of up to the beauty of Mother Nature and the aura of glittering stars and universes never even dreamed of before....

33,000 emails whitewashed and a majority of folks here who distrust government more than ever, thus Trump and 300 million guns in the hands of law abiding citizens who WILL more and more turn to cryptocurrencies so like cannibis, both are here to stay and while WAR is certain to again break out given the global corruption and self-serving leadership government after government, it is time to introduce the world of cryptocurrencies to our young as the lack of genuine leadership and a CNN type of tainted media where politicizing has compromised any real sense of journalism and factual reporting, point to a real need for those of us on "Main Street USA" to get on board in this 21st century and take hold of our finances and become enlightened to the world of cryptocurrencies....Be vigilant in every way and be vigilant when engaging cryptocurrencies as well for Lucifer walks among us and we must be crafty and keen in our ways not to be taken advantage and our information and value compromised in any way....

Hold your guns close to your vest as well. In the thousands of years humans have been walking around, imagine in just 100 years, two World Wars and as we await the return of Karl Guttenberg to lead Germany and challenge the "Brutes of Tehran" and German nationalism leads us again to the inevitable War just ahead, the world of cryptocurrencies in kiosks already found in the thousands in Europe and soon here in the US with most transactions including real estate in cryptocurrencies soon to force many more to better understand this new reality...while corrupt government officials mostly led by the Democrats, however not excluding the Republicans seek new regulation which they will fail to do as human self-preservation is God given and like those with 300 million guns who will NOT relinquish their guns, the world of cryptocurrencies is very much a part of reality....

Time to read my new book which will be published and available for Christmas, "CryptoC For You and Me" by Citizen Joe ($19.95) which I am working on to explain to the lay person the realty and benefits to conduct daily transactions and invest to assure security and give the finger to these politicians who take oath w hand on Bible and cannot be trusted whatsoever....

What about credit? It's more important than money. Can you create credit with cryptocurrency? Also, can you pay your taxes in cryptocurrency? Money, credit/debt and taxes: These are three interdependent aspects of an effective currency. If cryptocurrency can't accommodate those functions, how is it different from Western Union or ACH? A single dominant cryptocurrency might serve as a common global currency for global businesses, but we're seeing lots of ICOs. There will be a Babel of cryptocurrencies. There's a lot of loose money around, and two major high risk/reward outlets for animal spirits: cryptocurrency and cannabis.

Sorry but the concept of fiat currency isn't any easier for the masses to understand. Cryptocurrency is the first concept that could be a legitimate global currency. Current digital currency solutions are not the same. Cryptos operate more like cash. If I have $20 and I give it to someone that person now has that $20. Cryptos operate the same based on blockchain. Current digital solutions impose middle-man. If I give someone $20 through my bank, it goes from the bank to a clearing firm, takes 3 days to settle and finally arrives at the other person's bank. We have created the appearance that it is instant but it isn't. The main difficulty with cryptos is determining how to convert existing assets if we were to standardize to a blockchain based crypto.

I'd argue that crypto is actually way easier to understand than the fiat system. The tech underpinning crypto is tough to grok, but that stuff shouldn't matter to most people. We fly in planes despite not understanding all of the physics underpinning flight.

To take the flight analogy further, suppose your bank wire or other funds transfer is a plane trip. When you jump on the Bitcoin plane, you're guaranteed to go from your departure point to your destination quickly and in one hop. It's a very simple operation. When you take the traditional financial route, you may end up leaving later than intended as your departure time is outside of your control. You may end up arriving very late after having been required to take a bunch of connecting flights and pay extra fees, these things happen all the time. Finally and most importantly, you may not even arrive at your destination.

I'd argue that crypto is actually way easier to understand than the fiat system. The tech underpinning crypto is tough to grok, but that stuff shouldn't matter to most people. We fly in planes despite not understanding all of the physics underpinning flight.

To take the flight analogy further, suppose your bank wire or other funds transfer is a plane trip. When you jump on the Bitcoin plane, you're guaranteed to go from your departure point to your destination quickly and in one hop. It's a very simple operation. When you take the traditional financial route, you may end up leaving later than intended as your departure time is outside of your control. You may end up arriving very late after having been required to take a bunch of connecting flights and pay extra fees, these things happen all the time. Finally and most importantly, you may not even arrive at your destination.

Hmm. Some of us with high school physics pretty much understand the underpinnings of flight as well as the reasons why giant aircraft carries float, and how we can send precisely land spacecraft of comets. Most people don't learn physics or simple economics which is a reason why people get taken in by variations of tulip mania or pyramid schemes which crypto currencies resemble. Remember the chain is finite. Somebody gets left holding the bag.

There is nothing in this article except the obvious. People try to innovate new ways to do things. That is not new information. Should we not innovate because something similar was done in the past? Money and the best way for it to work has been a humanity long experiment. We're always trying new ways to fix problems. I really don't see the point in writing an article stating that we have tried different monetary systems and some have failed and others succeeded. Is that new information?

In the 1980s, "practically no one, outside of computer science departments, can explain how" the Internet works. Bryant Gumbel says "What is Internet, anyways?" during this 1995 "Today Show": https://www.youtube.com/watch?v=UlJku_CSyNg

It is difficult to see the potential in technology you don't understand. Bitcoin was the first autonomous system that didn't need a central authority to keep it online, healthy, honest and safe. Calling it a half baked idea isn't fair.

Saying Blockchain is only about dreamers who want to stick it to 'the man' is very 'straw man'.

Blockchain does actually bring some real benefits to the table - both actual and potential.1. Distributed ledgers allow for low transaction costs to be created. See Etherium. Bitcoin is a poor example of this.2. It can allow for anonymous money. Bitcoin is again a poor example.3. It can create alternative methods of money creation - and central banks hate this idea because currently they get to create money via fractional lending. Fractional lending is very useful to economies but it vests a lot of power in the banker class driving up inequality - which can have severe long term effects. 4. Authoritarian governments will like it because it can be configured as a tool of control by making every transaction traceable to an individual. 5. It can be used to render money non-fungible or attach certain trust-less conditions to it (like escrow or market performance). In other words, it can make automatically enforceable complex transactions which is something extremely useful in the world of microeconomics.

By way of analogy lets apply your logic to smartphones a la iPhone 1 era.

Nobody knows how they work unless they are in the industry. TRUE.Fundamentally, they do nothing new, other than sliding your finger around the screen. TRUE.It is mostly a bunch of rich hippy types buying them from that fruit company. TRUE (at least initially).

The author claims boldly and without evidence that Bitcoin is somehow the same as a cherry-picked list of bizarre failures in the history of monetary experiments. It's important to note that Bitcoin is successful. This separates it entirely from the examples. It's also very easy to explain what it is. Many many people from all walks of life can do it: it's a distributed computer network with its own native currency, which is built on top of the internet, and can't be shut down. As gold or silver coins have value because they're / have been a useful form of physical money, bitcoin has value because it's a useful form of digital money. In my personal opinion, the cryptocurrency "revolution" isn't a reaction against the state whatsoever, it's a reaction against gross inefficiency in the market.

Great article! Why would you create something that already exist.Money is already digitally distributed.The explanation of bitcoin pushers is that is limited.But of course it maybe limited as how many full unit will be there but numbers are unlimited in any direction or like by fractions so 0.001 bitcoin or 0.00000001 bitcoin is the same to use if it is 1000 or 100000000Indeed sounds like a reasonable idia to use labor notes as money the obvious problem with it that the labor value variation is kind of unlimited even in the same economic jurisdiction where the same money is used to sell your labor and buy someone's else labor.I guess the idia was that 1 hour of work was the same value for everyone regardless if it was a CEO or a superstar futball player or a cleaner or an engineer.

Actually, it is not that limited because anyone can copy the software and do an ICO, of which there have been thousands. Bitcoin is limited, but then so is the dollar which if over issued will cause inflation and then hyper-inflation. The amount of trust/value in the system must always be divided by the number of units issued.

The supply of Bitcoin is limited regardless of forks. And a fork is really just the equivalent of a person printing their own unique form of paper "money". This paper would have certain properties in common with actual real money (it's size, the numbers on it, images, a supply, etc.) but would you accept it as payment? It's important to talk about Bitcoin when you're talking about Bitcoin, and not open the conversation up to "all software".

Humans are like that. They keep on thinking that what they discovered was not discovered before... several times.Great article. I just add this article to short list of articles to share when somebody tries to convince me about the cryptocurrencies...

By that logic, the Romans had already invented cellphones, lasers and nuclear weapons. Of course there is much overlap, but even a small change to an existing idea can mean the difference between an IBM Simon and an iPhone.

I am sorry I might misguided you with my comment. I was more on lines of Propositional Knowledge than on the effects of Prescriptive Knowledge see Mokyr, 2002, for example.

And now a quote to keep you inspired to contribute for a better world:

William Petty, 1679: "Although the inventor often times drunk with the opinion of his own merit, thinks all the world will invade and incroach upon him, yet I have observed that the generality of men will scarce be hired to make use of new practices, which themselves have not been thoroughly hired... for as when a new invention is first propounded, in the beginning every man objects, and the poor inventor runs the gantloop of all petulant wits... not one [inventor] of hundred outlives this tortures... and moreover, this commonly is so long a doing that the poor inventor is either dead or disabled by debts contract to pursue his design"

I suspect William Petty was aware that inventor has followers...

This was 339 years AGO... and today... and tomorrow... One does not be Nietzsche to see the recurrence even though is not eternal ☺

The difference is that the prior attempts to create a new monetary system were not as threatening as Bitcoin is. Not all cryptocurrencies are the same as Bitcoin and furthermore, Shiller explains the types of psychology behind the attempts of the creations of new monetary systems in which I agree, but when it comes to Bitcoin it is different. The difference is that the psychology behind Bitcoin is one that empowers the people and in all honesty it just becomes the new "middle man", with way less arbitrary expenses added to handling ones own money along with security, is deflationary and becomes more valuable the more people acquire it, it's like the more people have it, the more powerful it becomes, it is like power in unity for the same cause. Another point that shiller made was that, most of the people who are involved with cryptocurrencies do not know how they work, which is true. The reality of it is that most people do not know how money works anyway. Bitcoin states exactly how it works, where it came from, and how to use it all on the white paper. Just how I came to take the time and understand how it works so can everyone else. Where do you see anyone explaining how fiat works and the what is behind the design of it? No where. Well, no where that is as transparent as Bitcoin. Summarizing this rant I just wanna ask, who doesn't want a change?